SBT Deduction and Credit Available for Assets Used in an Exempt Activities
In Sparrow Hospital Association v. Department of Treasury, Michigan Court of Appeals, No. 294833, February 15, 2011 the Michigan Court of Appeals has held that a taxpayer that was a nonprofit entity could claim the capital acquisition deduction (CAD) for tax years 1993 to 1999 and the investment tax credit for tax years 2000 and 2001 against the former single business tax for capital assets that were used in the entity's tax-exempt activities. Examining the statutory language of the applicable Michigan laws, the court determined that the reference to federal law was made to determine the type of assets that were subject to the CAD or the credit. The statutory language did not require the tax-exempt entity to calculate the credit solely on its nonexempt activities. As such, the taxpayer was not required to allocate the assets between its exempt and nonexempt activities. The court acknowledged that this result allowed the taxpayer to potentially "double dip;" i.e., the taxpayer was granted tax-exempt status on its nonprofit activities and, in addition, it also was permitted to reduce the taxes it owed on its unrelated taxable income with capital assets used in its tax-exempt activities. Nonetheless, the statutory language dictated this result.